Record oil output from US, Brazil, Canada and Norway to keep global markets well supplied

Oil production growth from the United States, Brazil, Canada and Norway can keep the world well supplied, more than meeting global oil demand growth through 2020, but more investment will be needed to boost output after that, according to the International Energy Agency’s latest annual report on oil markets.

Over the next three years, gains from the United States alone will cover 80% of the world’s demand growth, with Canada, Brazil and Norway – all IEA family members – able to cover the rest, according to Oil 2018, the IEA’s five-year market analysis and forecast.

But the report finds that despite falling costs, additional investment will be needed to spur supply growth after 2020. The oil industry has yet to recover from an unprecedented two-year drop in investment in 2015-2016, and the IEA sees little-to-no increase in upstream spending outside of the United States in 2017 and 2018.

“The United States is set to put its stamp on global oil markets for the next five years,” said Dr. Fatih Birol, the IEA’s Executive Director. “But as we’ve highlighted repeatedly, the weak global investment picture remains a source of concern. More investments will be needed to make up for declining oil fields – the world needs to replace 3 mb/d of declines each year, the equivalent of the North Sea – while also meeting robust demand growth.”

Boosted by economic growth in Asia and a resurgent petrochemicals industry in the United States, global oil demand will increase by 6.9 mb/d by 2023 to 104.7 mb/d, according to the IEA. China remains the main engine of demand growth, but more stringent policies to curb air pollution will slow growth. The increasing penetration of electric buses and LNG trucks will have a bigger impact on curbing consumption of transport fuels than the electrification of passenger vehicles.

In the United States, fuel-economy standards for passenger cars will curb gasoline demand with growth coming from the petrochemical sector, which is thriving thanks to low-cost ethane. New global petrochemicals capacity will account for 25% of oil-demand growth by 2023. Meanwhile, a new marine fuel rule with lower sulfur content that will come into force in 2020 is creating uncertainty in the market.

Global oil production capacity is forecast to grow by 6.4 mb/d to reach 107 mb/d by 2023. Thanks to the shale revolution, the United States leads the picture, with total liquids production reaching nearly 17 mb/d in 2023, up from 13.2 mb/d in 2017. Growth is led by the Permian Basin, where output is expected to double by 2023.

The path is clear to get those additional barrels to world markets. As a result of new investments in pipelines and other infrastructure that ease the current bottlenecks, US crude export capacity reaches nearly 5 mb/d by 2020 and Corpus Christi solidifies its position as the primary North American crude-oil outlet.

Virtually all of the OPEC output growth comes from the Middle East. In Venezuela, oil production has fallen by more than half in the past 20 years, and declines are set to accelerate. Sharply falling production in Venezuela will offset gains in Iraq, resulting in OPEC crude oil capacity growth of just 750,000 barrels a day by 2023. Unless there is a change to the fundamentals, the effective global spare capacity cushion will fall to only 2.2% of demand by 2023, the lowest number since 2007.

Oil 2018 also examines a variety of other topics including crude quality issues arising from the rapid increase in US production, changing trade flows and a growing global refining capacity surplus. Global oil trade routes are moving East, as China and India replace the United States as top oil importers. With seaborne oil traveling longer distances, energy security, one of the IEA’s core missions, will remain as critical as ever.

Four Things You Should Know About Battery Storage

The global
energy landscape is undergoing a major transformation. This year’s Innovate4Climate (I4C) will have a priority focus on
battery storage, helping to identify ways to overcome the technology, policy
and financing barriers to deploy batteries widely and close the global energy
storage gap.

Here are
four things about battery storage that are worth knowing.

First, energy storage is key to realizing the potential
of clean energy

Renewable sources of energy, mainly solar and wind,
are getting cheaper and easier to deploy in developing countries, helping
expand energy access, aiding global efforts to reach the Sustainable Development Goal on
Energy (SDG7) and to mitigate climate
change. But solar and wind energy are variable by nature, making it necessary
to have an at-scale, tailored solution to store the electricity they produce
and use it when it is needed most.

Batteries are a key part of the solution. However, the
unique requirements of developing countries’ grids are not yet fully considered
in the current market for battery storage – even though these countries may
have the largest potential for battery deployment.

Today’s market for batteries is driven mainly by the
electric vehicles industry and most mainstream technologies cannot provide long
duration storage nor withstand harsh climatic conditions and have limited
operation and maintenance capacity. Many developing countries also have limited
access to other flexibility options such as natural gas generation or increased
transmission capacity.

Second, boosting battery storage is a major
opportunity

Global demand for battery storage is expected to reach
2,800 gigawatt hours (GWh) by 2040 – the equivalent of storing a little more
than half of all the renewable energy generated [today] around the world in a
day. Power systems around the world will need many exponentially more storage
capacity by 2050 to integrate even more solar and wind energy into the
electricity grid.

For battery storage to become an at-scale enabler for
the storage and deployment of clean energy, it will be imperative to accelerate
the innovation in and deployment of new technologies and their applications. It
will also be important to foster the right regulatory and policy environments
and procurement practices to drive down the cost of batteries at scale and to
ensure financial arrangements that will create confidence in cost recovery for
developers. It will also be essential to find ways to ensure sustainability in
the battery value chain, safe working conditions and environmentally
responsible recycling.

With the right enabling environment and the innovative
use of batteries, it will be possible to help developing countries build the
flexible energy systems of the future and deliver electricity to the 1 billion
people who live without it even today.

Third, battery storage can be transformational for the
clean energy landscape in developing countries

Today, battery technology is not widely deployed in
large-scale energy projects in developing countries. The gap is particularly
acute in Sub-Saharan Africa, where nearly 600 million people still live without
access to reliable and affordable electricity, despite the region’s significant
wind and solar power potential and burgeoning energy demand. Catalyzing new
markets will be key to drive down costs for batteries and make it a viable
energy storage solution in Africa.

Already, there is tremendous demand in the region
today for energy solutions that do not just boost the uptake of clean energy,
but also help stabilize and strengthen existing electricity grids and aid the
global push to adopt more clean energy and fight against climate change.

Fourth, the World Bank is stepping up its catalytic
role in boosting battery storage solutions

There is a clear need to catalyze a new market for
batteries and other storage solutions that are suitable for electricity grids
for a variety of applications and deployable on a large scale. The World Bank
is already taking steps to address this challenge. In 2018, the World Bank
Group announced a $1 billion
global battery storage program, aiming to raise $4 billion more in private and public funds to create
markets and help drive down prices for batteries, so it can be deployed as an
affordable and at-scale solution in middle-income and developing countries.

By 2025, the World Bank expects to finance 17.5 GWh of
battery storage – more than triple the 4-5 GWh currently installed in
developing countries. With the right solutions, it can be possible to build
large-scale renewable energy projects with significant energy storage
components, deploy batteries to stabilize power grids in countries with weak
infrastructure, and increase off-grid access to communities that are ready for
clean energy with storage.

The World Bank has already financed over 15% of
grid-related battery storage in various stages of deployment in developing
countries to date.

In Haiti, a combined solar and battery storage project
will ultimately provide electricity to 800,000 people and 10,000 schools,
clinics and other institutions. An emergency solar and battery storage power
plant is being built in the Gambia, as are mini-grids in several island states
to boost their resilience.

In India, a joint WB-IFC team is developing one of the
largest hybrid solar, wind and storage power plants in the world, while in
South Africa, the World Bank is helping develop 1.44 gigawatt-hours of battery
storage capacity, which is expected to be the largest project of its kind in
Sub-Saharan Africa.

Related

Driving a Smarter Future

Today the average car runs on fossil fuels, but growing pressure for
climate action, falling battery costs, and concerns about air pollution in
cities, has given life to the once “over-priced” and neglected electric
vehicle.

With many new electric vehicles (EV) now out-performing their fossil-powered
counterparts’ capabilities on the road, energy planners are looking to bring
innovation to the garage — 95% of a car’s time is spent parked. The result is
that with careful planning and the right infrastructure in place, parked and
plugged-in EVs could be the battery banks of the future, stabilising electric
grids powered by wind and solar energy.

Today the average car runs on fossil fuels, but growing pressure for
climate action, falling battery costs, and concerns about air pollution in cities,
has given life to the once “over-priced” and neglected electric vehicle.

With many new electric vehicles (EV) now out-performing their
fossil-powered counterparts’ capabilities on the road, energy planners are
looking to bring innovation to the garage — 95% of a car’s time is spent
parked. The result is that with careful planning and the right infrastructure
in place, parked and plugged-in EVs could be the battery banks of the future,
stabilising electric grids powered by wind and solar energy.

Advanced forms of smart charging

An advanced smart charging approach, called Vehicle-to-Grid (V2G),
allows EVs not to just withdraw electricity from the grid, but to also inject
electricity back to the grid. V2G technology may create a business case for car
owners, via aggregators (PDF), to provide ancillary services to the grid. However, to be
attractive for car owners, smart charging must satisfy the mobility needs,
meaning cars should be charged when needed, at the lowest cost, and owners
should possibly be remunerated for providing services to the grid. Policy
instruments, such as rebates for the installation of smart charging points as
well as time-of-use
tariffs (PDF), may incentivise a wide deployment
of smart charging.

“We’ve seen this tested in the UK, Netherlands and Denmark,” Boshell
says. “For example, since 2016, Nissan, Enel and Nuvve have partnered and
worked on an energy management solution that allows vehicle owners and energy
users to operate as individual energy hubs. Their two pilot projects in Denmark
and the UK have allowed owners of Nissan EVs to earn money by sending power to
the grid through Enel’s bidirectional chargers.”

Perfect
solution?

While EVs have a lot to offer towards accelerating variable renewable
energy deployment, their uptake also brings technical challenges that need to be
overcome.

IRENA analysis suggests uncontrolled and simultaneous charging of EVs
could significantly increase congestion in power systems and peak load.
Resulting in limitations to increase the share of solar PV and wind in power
systems, and the need for additional investment costs in electrical
infrastructure in form of replacing and additional cables, transformers,
switchgears, etc., respectively.

An increase in autonomous and ‘mobility-as-a-service’ driving — i.e.
innovations for car-sharing or those that would allow your car to taxi
strangers when you are not using it — could disrupt the potential availability
of grid-stabilising plugged-in EVs, as batteries will be connected and
available to the grid less often.

Impact of charging according to type

It has also become clear that fast and ultra-fast charging are a
priority for the mobility sector, however, slow charging is actually better
suited for smart charging, as batteries are connected and available to the grid
longer. For slow charging, locating charging infrastructure at home and at the
workplace is critical, an aspect to be considered during infrastructure
planning. Fast and ultra-fast charging may increase the peak demand stress on
local grids. Solutions such as battery swapping, charging stations with buffer
storage, and night EV fleet charging, might become necessary, in combination
with fast and ultra-fast charging, to avoid high infrastructure investments.

To learn more about smart charging, read IRENA’s Innovation
Outlook: smart charging for electric vehicles. The report explores the degree of complementarity potential between
variable renewable energy sources and EVs, and considers how this potential
could be tapped through smart charging between now and mid-century, and the
possible impact of the expected mobility disruptions in the coming two to three
decades.

Related

What may cause Oil prices to fall?

Oil prices have rallied a whopping 30 percent this year. Among other factors, OPEC’s commitment to reduce output,
geopolitical flash-points like the brewing war in Libya, slowdown in shale production and optimism in U.S. and China trade war
have all added to the increase. The recent rally being sparked by cancellation of waivers granted to countries importing oil form Iran has taken prices to new
highs.

However, one might question the
sustainability of this rally by pointing out few bearish factors that might
cause a correction, or possibly, a fall in oil prices. The recent sharp slide
shows the presence of tail-risks!

Libya produces just over 1 percent of world oil output at 1.1 million barrels, which is indeed not of such
a magnitude as to dramatically affect global oil supplies. What is important is
the market reaction to every geopolitical event that occurs in the Middle East
given the intricate alliances and therefore the increasing chances of other
countries jumping in with a national event climaxing into a regional affair.

Matters in Libya got serious as an airstrike was carried out on
the only functioning airport in the country a few days ago. Khalifa Haftar who
heads Libyan National Army has assumed responsibility for the strike. However,
UN and G7 have urged to restore peace in Tripoli. Russia has categorically said to use “all available means” while U.S.’ Pompeo called for “an immediate halt” of atrocities in Libya.

The fighting has been far from locations
that hold oil but the overall sentiment is that of fear which is understandable
as this happens in parallel to a steep decline in Venezuelan production,
touching multi-year low of 740,000 bpd. However, as international
forces play their part we might expect a de-escalation in the Libyan war — as
it has happened before.

Besides the chances of an alleviation of
hostilities in Libya, concerns pertaining to global economic growth, and
thereof demand for oil, have still not disappeared. The U.S. treasury yield,
one of the best measures to predict a future slowdown (recession), inverted last month; first time since 2007. If this does not raise doubts over the global
economic health then the very recent announcement by International Monetary Fund (IMF) who has slashed its outlook for
world economic growth to its lowest since the last financial crisis. According
to the Fund the global economy will grow 3.3 percent this year down from 3.5
percent that predicted three months ago.

image: Bloomberg

Then there is Trump, whose declaration of
Iran’s IRGC as a terrorist organization might increase the likelihoods of yet another spate of heated rhetoric
between the arch-rivals. But if he is genuinely irked by higher oil prices as
his tweets at times show and if he thinks that higher gasoline prices can hurt his political capital then this will certainly have a bearish
effect on the markets as observers take a sigh regarding the mounting, yet
unsubstantiated, concern over supply.

One of the factors that contributed most
to the recent rally was OPEC’s unwavering commitment to its production cuts.
The organization’s output fell to its lowest in a year at 30.23 million barrels per day in February 2019, its lowest in four years. But the
question remains for how long can these cuts go on? Last month it was reported the Kingdom of Saudi Arabia had admitted that they need oil at $70 for
a balanced budget while estimates from IMF claims that the level for a budget break-even are even higher: $80-$85. We
should not forget Trump and his tweets in this regard as well. Whenever prices
have inched up from a certain threshold POTUS’ tweet forced the market to
correct themselves (save the last time). One of the key Russian officials who
made the deal with OPEC possible recently signaled that Russia may urge others to increase production as they meet in the
last week of June this year. While this is not a confirmation that others will
agree but it certainly shows that one of the three largest oil producers in the
world does feel that markets are now almost balanced and the cuts are not
needed further.

Now with the recent cancellation of
waivers we should expect U.S. to press KSA to increase production to offset the
lost barrels and stabilize the prices.

Finally stoking fears of an impending
supply crunch (a bullish factor) is the supposed slowdown in U.S. Shale production.
But the facts might be a tad different. Few weeks ago U.S. added 15 oil rigs in one day, a very strong number indeed-this comes after a decline of
streak of six consecutive weeks. According to different estimates the shale
producers are fine with prices anywhere between $48 to $54 and the recent rise
in prices has certainly helped. Well Fargo Investment Institute Laforge said that higher prices will result in “extra U.S. oil production in coming
months”. Albeit, U.S.’ average daily production has decreased a bit but it doesn’t mean that the shale producers cannot bring back
production online again. Prices are very conducive for it.

So if you think that prices will continue
to head higher, think again. Following graph shows that oil had entered the overbought territory few
days back–hence the recent slide.

Therefore, If the war in Libya settles
down (and there is a strong possibility that it will); rumors of a production
increase making its way into investors’ and traders’ mind (as it already have) and
global economy continue to struggle in order to gain a strong footing — the
chances are oil will fall again. The current rally might last for some-time
but, like always, beware not to buy too high.